Clean technologies propel venture capital funding

Shrugging off credit-related economic woes, venture capitalists bet heavily on new companies in the third quarter, driven by opportunities in clean technologies, software and biotechnology.

But Washington companies didn't attract as much cash as in the recent past, as new funding for local biotech plummeted. An Ernst & Young/VentureOne report ranked the state in eighth place by dollar amount received, down from third in the second quarter.

The VentureOne report said the venture-capital amount invested this quarter, at $8.07 billion, is the highest since the first quarter of 2001, during the tech bubble.

The competing PricewaterhouseCoopers/National Venture Capital Association MoneyTree report, based on Thomson Financial data, came up with a different number: $7.1 billion, slightly down from the second quarter, but still robust.

The "steady pace" of investment may result in "the highest level since the fourth quarter of 2001," said Matthew Toole, private-equity-research director for Thomson Financial, during a conference call with reporters.

Riding high amid environmental concerns and rising crude-oil prices, clean technologies raised a record $844 million, according to the MoneyTree report.

The sector is "reaching critical mass," said Bryan Stolle, general partner with Mohr Davidow Ventures, a VC fund that specializes in technology but is now delving into alternative energy. "The primary focus for us is diversification away from oil."

There's a certain amount of "frothiness" in clean-tech investment, resulting in high prices paid for opportunities in the sector, Stolle said, but it's nothing like last decade's Internet bubble. "All of these things, we believe, have real businesses and real economics behind them."

Biotechnology also enjoys a favorable investment climate, driven by big pharmaceuticals that need to replenish dry product pipelines.

"There's much more [mergers and acquisitions] activity than we've had in the previous 15 years," said Tracy Lefteroff, global managing partner of venture capital and life-sciences-industries services at PricewaterhouseCoopers.

In Washington state, the top deals went to medical-device company EndoGastric Solutions, which raised $29.6 million, and to Zillow, the Seattle online real-estate-services firm that raised $27.2 million, according to MoneyTree.

Wireless software developer Action Engine, of Bellevue, raised $15.6 million. In clean tech, the MoneyTree report highlighted Propel Biofuels — which received $4.7 million — and 3Tier, which raised $2 million.

Biologically engineered therapies didn't lure much venture funding in Washington. The Ernst & Young/VentureOne report says that biopharmaceuticals raised $900,000 this quarter, down from $59 million in the previous quarter, most of which went to biotech startup VLST.

But the lack of significant deals doesn't necessarily mean there's a lull in the sector, as venture-capital firms often take months to evaluate opportunities, said Chad Waite, managing director at Kirkland-based OVP Venture Partners.

The state's companies raised $210.35 million, down from $301.52 million the previous quarter, according to the VentureOne report. The MoneyTree data is a bit sunnier, reporting $235 million in investments, down from $268.9 million the previous quarter.

But venture-capital activity must be measured in longer terms, Waite said. In Seattle, the funding rhythm remains "pretty good," he said. "For about a year, things have been pretty steady."

Ángel González: 206-515-5644 or agonzalez@seattletimes.com